By most measures the labor market is tight. The unemployment rate now stands at 4.1% which is lower than it’s been throughout Oregon’s history, other than the 2017-19 time period last cycle where the unemployment rate was roughly in the 3.5-4% range. Wage growth and labor income overall are booming as a result. Average wages are up 17% since the start of the pandemic, and total wages and salaries in the state are 11% above pre-pandemic levels. Our office’s forecast for wages has never been stronger, despite a somewhat lower employment outlook tied to the recession and slower population growth.
Even so, what’s interesting to note is that while all of the above is true, it’s not that labor demand is through the roof per se. Yes, Oregon firms are looking to fill a near-record number of job vacancies, but when combined with actual employment in the state, that really just brings us back to where we were pre-pandemic. This brings us to this edition of the Graph of the Week. Total labor demand in Oregon is strong, this economic recovery is 2-3x faster than coming out of the Great Recession but really firms are just struggling to staff back up to where they were two years ago.
Naturally the key question asked in the past year, and moving forward, is “when will the workers come?” Our office has talked about this a lot in terms of strong household finances — thanks to federal aid, strong wage growth, and record-setting asset markets — and how those especially intersect with folks having any other contingency when it comes to fear of the virus, childcare issues, and the like. This means for households where one adult is already working, that the second (potential) earner does not need to return to the workforce as quickly as you’d expect given their household finances.
An additional factor here is that with wages being so strong, there has been a decline in what economists call multiple jobholders. It’s exactly as it sounds. These are individuals working more than one job. Nationally, while multiple jobholders are increasing again in the past year, they are still down during the entire pandemic. The implication here is that the number of people working is relatively higher than the payroll job counts because if you switch from 2 jobs to 1 job, you are working, but it does look like the loss of 1 job in the payroll data. Mathematically this decline in multiple jobholders is not insignificant. Nationally the decline is equal to about 840,000 workers, and given national payroll employment is down about 3.6 million, it’s likely another factor impacting labor market dynamics. If we share those figures down to Oregon that’s more like 10,000 fewer multiple jobholders in the state and our employment is about 54,000 below pre-pandemic peak. Again, not an insignificant factor even if the math and dynamics aren’t quite as clean as those numbers suggest.
Overall our office remains labor supply optimists. One thing I would add is that while firms have had to really adjust to bring workers on in the past year, they have been able to do it. Over the past year — Dec ’20 to Dec ’21 — Oregon businesses added 107,000 jobs for a growth rate of 5.9%. The workers are coming back. Labor supply has increased. The state has now recovered more than 4 in 5 of the lost jobs at the start of the pandemic. Now, those gains are not quite as fast as businesses would have like, and the adjustments by businesses in terms of wage increases and the like are challenging. That said, in an inflationary boom like we are in, firms have been able to not only absorb those higher costs but also pass them on to customers.
Bottom Line: The labor market is tight. Workers are returning. Our office’s expectations are the labor market will make a full recovery in 2022. Wage growth will remain strong, albeit more in-line with full employment dynamics, if not a bit stronger (4-4.5% annual increases) than in the pandemic dynamics (8%). The wildcard here is inflation. We know inflation is not costless. To the extent inflation and inflation expectations become more entrenched in labor negotiations and wage gains, then these pandemic dynamics are likely to persist longer than anticipated. This cycle is different. While it presents its own set of challenges, to date these are a better set of issues to deal with than the jobless recoveries and lack of demand experienced in previous cycles.
The omicron wave is here and new COVID-19 cases are going hockey stick. Our office has fielded a few questions this week about how this feels like 2020 all over again. While there may be some similarities in terms of skyrocketing cases, there are a some key differences in terms of the state of the economy, expected duration of the wave, etc. Let’s run through a few different ways our office is thinking about the current state of the pandemic and economy.
First, cases are at record highs here in Oregon. While breakthrough cases are more common with omicron than previous waves, we know vaccinations still provide clear benefits in terms of both contracting the virus and the severity of illness if you do.
In terms of the economy, what matters most are shutdowns, given those sideline large swaths of consumer spending and employment overnight. Absent shutdowns, and we have not had any in a year, the biggest impacts of the pandemic are in terms of workplace disruptions. Workers who are out sick and/or quarantining do represent lost production and productivity.
During the pandemic, we have seen an increase in the number of workers who are employed but not at their jobs due to illness. Nationally there are an additional 600,000 workers out sick above and beyond what we typically saw pre-pandemic. That increase is equal to about 0.4% of the total workforce. Translating these national figures to Oregon, that’d be about 8,000 additional workers not at work today due to being sick.
More workers being sick is impacting all sectors of the economy, including education. We are starting to see some classes, and even whole schools move to distance learning as a temporary measure to help curb the cases. The key here is school staffing and the ability to fill all the substitute positions when teachers are out sick. Online schooling, of course, has knock on impacts for households, and working parents in particular.
This impact was one of the first things our office dug into at the start of the pandemic. I have updated that work to get a look at the current state of the workforce across the country (US data due to small sample sizes for Oregon). Nationally, about 1 out of every 8 working Americans fits the following description. They have kids, work in an occupation that cannot be done remotely, and do not have another non-working adult present in the household. In other words these 20 million Americans are in a bind. They must arrange other childcare/schooling options, or take time off of work to be home if their kid’s classes or schools go remote.
Another piece to online learning our office looked at back in 2020 were the income, geographic, and racial and ethnic disparities when it comes to access to technology. Unfortunately the 2020 ACS microdata does not allow us to combine individual level details like race and ethnicity with household variables about broadband access and the like. That said, following table clearly shows the income and geographic disparities when it comes to broadband access in Oregon.
Bottom Line: The omicron wave is here. A silver lining is that the illness severity may not be as bad as delta, and that while the peak number of cases is higher, the duration is shorter and the wave crests faster. The overall impact of omicron on the economy is expected to be less than in past waves because there are no shutdowns and consumers continue to spend. That said, expect to continue to see workplace disruptions as workers are out sick. This will include some schools moving back to online learning temporarily.
Most readers are likely familiar with the Misery Index, a calculation created by economist Arthur Okun in the 1960s. It’s the sum of the rate of inflation and the unemployment rate. As such it’s a relative gauge of how households are doing. While unemployment is declining today as the economy recovers, inflation has picked up, reversing the recent improvements in the standard misery index.
Today, between labor challenges and rising input costs, businesses are miserable as well. Inflationary booms are challenging. The newly created Corporate Misery Index combines rising prices and the job opening rate to gauge the supply constraints firms are facing in the economy. Now, given the strong consumer demand, companies have been able to pass along their cost increases during the pandemic. Corporate profits are at record highs, which means they financially offset the day-to-day challenges of running a business, even as those challenges are larger than at any point in recent decades.
Digging into the data further reveals an interest pattern across sectors here in Oregon. In the scatterplot below, the horizontal axis shows the current job opening rate in Oregon. This gauges how many employees companies would like to hire, relative to the size of their existing workforce. The further an industry is to the right, the larger its current labor challenges. On the vertical axis is the increase in costs at the national level from various production and consumer price indices. Given available data the comparison is not perfectly aligned at the sector level but the results are intuitive and broadly in line with what firms in different sectors are saying.
In the upper-right corner are the sectors that are grappling with the largest increases in costs and the largest labor challenges. This includes goods-producing industries like construction and manufacturing, in addition to leisure and hospitality.
In the upper-left corner is transportation, warehousing, and utilities. The costs of logistics in terms of transportation and storage costs are rising rapidly, and industrial and warehousing vacancy rates are declining. However the industry is not facing quite as large of labor challenges, likely in large part because the sector has been raising wages and experiencing really strong job growth already. These gains include drawing in workers from other sectors like retail, manufacturing, and construction.
In the lower-right corner are industries like health care and other services (repair shops, barbershops and nail salons) which are looking to hire a lot of workers today but are not currently facing as strong of price pressures as the economy overall. Finally in the lower-left corner are sectors where they are generally struggling with labor and cost challenges but to a lesser degree than most other industries.
Looking forward, businesses are likely to continue to struggle with day-to-day operations given labor challenges and cost pressures. The outlook calls for corporate misery to ease some in the quarters ahead as labor supply returns some and price pressures abate. However, it is likely corporate misery will remain higher in the years ahead than during the previous couple of decades. The real corporate struggles still lie ahead and will be financial and operational in nature when they are no longer able to fully pass along their cost increases to consumers who at some point will be unwilling or unable to absorb them.
An economy where demand is very strong and supply is constrained is a classic recipe for rising prices. Inflation is running hot, and showing no real signs of letting up in the near term. Initially, much of the inflation could be directly tied to reopening sectors of the economy, and shortages in the automobile industry. More recently gas prices pushed headline inflation higher. However, inflationary pressures have widened beyond these specific, temporary issues. Inflation is currently running at about a 4 percent annualized pace in recent months, even after excluding these well-known issues. As discussed previously, persistent inflation is a moderate risk to the overall outlook.
Given the faster and broader inflationary pressures the Federal Reserve has pivoted in recent months. They are accelerating their tapering so that it ends in March instead of June of next year, and raised their forecast of interest rate hikes as well. Current expectations are for 3 rate hikes next year, in part to head off inflation so that it does not become more entrenched in the economy, but also in part due to the strong labor market. An underappreciated view has been that in the quarters ahead the Fed will meet both aspects of its dual mandate.
It’s important to keep in mind that inflation impacts the real economy in a few ways. Inflation is not costless.
First, higher prices eat into household budgets, ultimately resulting in what economists call demand destruction. When prices get too high, people stop buying. This feeds back into the production side of the economy. If sales slow, then firms do not need to produce as much, or employ as many workers. Now, this process typically results in slower real growth rather than outright declines. To date the U.S. economy has not reached this point given the strong income growth. However if hot inflation persists, we eventually will.
Second, higher prices also eat into the strong wage gains workers are experiencing. While the average wage in Oregon is up about 15 percent since the start of the pandemic, the real, or inflation-adjusted average wage is up 8 percent. Clearly those are still solid gains over the entire period, however as seen below, inflation is beginning to impact real wages much more in recent quarters. Inflation-adjusted wages are declining for most workers in the past 6-12 months.
Should inflation considerations become a more regular part of wage negotiations, it can lead to more cost-push inflationary pressures in the broader economy. What matters most for workers and households are real wage gains, which are not expected to pick up again in the current outlook until late next year as inflationary pressures subside.
Even so, wages are continuing to rise fastest among low-wage workers throughout the pandemic. After adjusting for inflation, Oregon workers earning less than $20 per hour are seeing real wage gains and an overall increase in their standard of living. On the other hand, middle- and high-wage workers are, on average, still earning wage gains, but those raises have not fully kept pace with inflation. (See here for the latest on real wages nationally.) One result of this wage compression is a reduction in overall wage inequality, which may have some social or economic benefits even in a high inflation environment.
Third, as costs rise, firms face the decision to pass these costs forward onto consumers, contributing to overall inflation, or to reduce margins or other costs to help keep final prices lower. These adjustments take time, and are based in part on businesses’ beliefs about the ability of consumers to absorb higher prices. Today, given incomes and demand, firms are passing along cost increases and profit margins have actually increased to be at or near record highs. Moving forward, at some point it is likely that rising labor costs will begin to reduce profit margins back down to their historical range. This will be disinflationary as final consumer prices increase at a lower rate than underlying costs.
Bottom Line: Inflation continues to run hot. Inflation is not costless for households or the economy more broadly. The Federal Reserve is pivoting to tightening policy more quickly than they had been anticipating to ensure that higher inflation does not become more entrenched in the economy. The ultimate economic risk is that tightening policy too quickly cools the economy too much leading to a boom/bust cycle. But for now the baseline outlook remains that the Fed is able to engineer a soft landing. The current inflationary boom turns into an ongoing economic expansion with moderate inflation at or near the Fed’s 2 percent target. Inflation continues to be one of the most interesting economic developments to watch in the year ahead.
Our social lives have been disrupted, our spending habits have shifted, and the way we go about our jobs is different for many as well. However, one piece of good news as we head towards the home stretch of the holiday season is at least on thing has returned to normal. Initial claims for unemployment insurance are all the way back down to where they were back in 2018 and 2019. In fact they’re even a bit lower. We’re seeing record low levels of layoffs in the economy for this time of year.
Note: There is a normal seasonal pattern to initial claims. They rise in the fall and early winter and stay elevated into the new year. This is in part due to seasonal layoffs in sectors like leisure and hospitality winding down from its summer highs, and construction as outdoor work is harder with colder/wetter weather, and then as seasonal holiday shopping related jobs end as well.
Given that firms are trying to attract and retain workers as much as they can, it shouldn’t be a real surprise to see such low levels of layoffs. That said, it sure is nice to see. Cheers!
While there has been no pandemic-related migration boom in Oregon, one of the most commonly cited reasons for it in the first place was the rise of working from home (WFH). It is true that WFH did become noticeably more prevalent during the pandemic, directly because of the pandemic as firms sent workers home to try and get as much work accomplished while limiting in-person interactions and slowing the spread of the virus. The open question is just how much WFH will increase in the years ahead, and what impacts it may have on population growth, commercial districts, housing markets and the like.
The WFH revolutionists may very well be right as the potential to reshape the landscape is clearly there. However we do not have the hard data to really confirm it is happening just yet. We know much of the initial increases last year were really about sheltering in place. There hasn’t been enough time to really see what the working landscape looks like post-pandemic because the pandemic isn’t over. An important thing to keep in mind is that we’re nearly two years into this thing. Even if something was originally thought to be temporary, the longer it goes on, the higher the probability of permanent shifts. And only then, once workers get a clearer picture of their employer’s expectations and plans would we tend to see larger life changes like WFH-related migration.
With that preamble said, let’s dig into the latest data.
To start, it’s important to note that in the past 18 months WFH has been steadily declining. Workers who were sent home during the initial shutdowns have slowly been returning to the office. Nationally, telecommuting due to the pandemic has fallen from 35% of the workforce back in May 2020 to 11% in November 2021. Similar patterns are seen among the largely office-based professional and business services industry. While Oregon’s data is noisier due to a smaller sample size, the state is certainly following national trends overall.
Now, the data above comes from a new question BLS has been asking during the pandemic when they conduct the monthly household survey. It specifically asks about telecommuting due to the pandemic itself, and is not supposed to be a question about telecommuting in general. That means there is certainly some gray area, particularly if WFH was originally about the pandemic but is now being incorporated more into standard business practices.
To get a better sense of WFH more broadly, we turn to the American Community Survey data. Here we see a large increase last year. Nationally the share of the workforce WFH increased 10.1 percentage points, which is nearly tripling the share working at home back in 2019. All three West Coast states rank among the Top 10 nationally and all three saw above-average increases last year.
Three things to note here.
One, the 2020 ACS figures are noticeably lower than what the BLS data indicated by about 6 percentage points on an annual average basis. That’s a significant difference.
Two, as discussed before, WFH is limited to about 1 in 3 workers who can theoretically work from home. These are, generally speaking, white-collar type jobs filled by college-educated workers. There is a clear divide among who can and cannot WFH. At least 2 in 3 workers need to physically be at a workplace to build buildings, provide care, cook meals, and the like. So there is an upper bound on just how prevalent WFH is and can become. Even last year, only 1 in 6 workers nationally worked at home while it was more like 1 in 5 on the West Coast.
Three, even at these relatively small percentages, the total number of workers is still big. In Oregon, the increase in the number working from home from 2019 to 2020 was 211,000. That’s a number that is larger than the entire pre-pandemic labor force of either the Eugene MSA (Lane) or Salem MSA (Marion and Polk). In fact only Multnomah and Washington counties have labor forces larger than the increase in WFH last year. It’s here, when you think of it this way that you can see the potential for large changes in the years ahead depending upon where firms land in terms of pure remote work versus hybrid models of a few days at home and a few in the office.
What’s interesting to see and probably shouldn’t be a surprise is that WFH so far during the pandemic has really been more about sheltering in place. It’s really about office-based workers in large cities working from home. Along the West Coast, workers in the cities of Portland, San Francisco, and Seattle all saw their WFH shares increase 20-30%. Their suburban counterparts saw above-average increases as well. However the small and medium sized metros and rural areas of West Coast states all saw below-average increases in WFH last year.
Digging further into the Oregon data shows that all of the PUMAs — public use microdata areas which are geographies of about 100,000 population — with above-average gains were in the Portland area, plus Linn-Benton which we know has a lot of commuting activity throughout the Willamette Valley. Other regions of the state saw increases, but ones that were smaller than the national average. I’m unsure to what degree the devastating 2020 wildfires may have impacted the WFH numbers in places like southern Oregon and outside Eugene (“Lane, Other”) and Salem (“Marion, Other”).
One other item that stood out in the scatterplot above is that Deschutes County (Bend MSA), which is one of the highest WFH places in the entire country, experienced a below-average increase last year. It got me thinking about the other Zoom Towns. It’s interesting to see that Missoula’s increase in WFH was about average as well. Truckee is a different story, where there was a very large increase, likely due to spillover from the Bay Area. In broad strokes, much of the pandemic era data points toward trends being a bit different in NYC and SF than in the rest of the country, which would also fit with these Zoom Town patterns as well. That said, in 2 of the Zoom Towns it’s interesting to see that WFH did not exactly skyrocket.
All of this, with Truckee being a possible exception, is an indication that any broader impacts of WFH in terms of migration and the like hasn’t happened yet. It very well may in the future, but we really need to see what WFH policies look like in the years ahead to get a better understanding of how and where the landscape will change.
If you put it all together, here is what our current projection for WFH looks like in Oregon. This updated outlook incorporates the latest ACS figures, BLS trends in 2021, and some academic and business research on the expected increases in the years ahead.
Expectations are there will be fundamental gains in WFH as it becomes a larger part of standard business practices. We know that in 2018, Oregon businesses offered the ability to telecommute to 15% of full-time positions and 7% for part-time positions, according to our friends at the Oregon Employment Department’s survey of employer-provided benefits. Those numbers will increase moving forward.
Bottom Line: It’s important to keep in mind that WFH is an opportunity for a select segment of the workforce. Depending upon where firms land on the hybrid model vs pure remote will likely go a long way to determining how WFH shapes our communities, the economy, commercial districts, housing markets and the like. Today, WFH is on the decline as workers are recalled to the office, which should boost downtowns and job centers more broadly. However in the years ahead WFH will be in the ascent. To what degree remains an open question. Encouragingly we know that WFH diversifies our regional economies and that nearly all of Oregon is above-average in WFH and broadband access. This means that if the WFH revolution does come, it has the potential to boost all regions of the state. And given overall population and economic growth, WFH does not mean that urban cores are stagnant in the years ahead either. New firms and residents, some of which may migrate here because of WFH opportunities at their previous location, will continue to move to, and live and work in Oregon.
Large metro areas led the recovery coming out of the Great Recession. Portland’s growth last decade was transformational. Among the 100 largest metros in the country, Portland ranked in the Top 10 for high-wage job growth, median household income gains, and increases in educational attainment. The region’s urban core also transformed physically with numerous apartments, hotels, and offices being built, helping create an attractive place to live, work, and play.
This cycle is different. During a pandemic, urban amenities like walkable neighborhoods and clusters of knowledge workers turn into dis-amenities. Portland is now the worst performing regional economy in the state. The primary reason is the lack of in-person activities that cities normally thrive on. With more individuals working from home and business travel just now starting to pick up, urban cores to date are not quite themselves. There just aren’t as many individuals going out to eat, window shopping, or staying in hotels.
However, incomes and consumer spending remain strong. It’s just more of that spending is occurring in suburban and rural areas as workers eat and shop closer to home. As seen above, the City of Portland is trailing the rest of the region and state in many in-person activities. Specifically, the number of people going out to eat is only halfway recovered, while it is fully recovered elsewhere in the state. Video lottery sales, a measure of consumer spending in bars and restaurants, are fully recovered in downtown Portland, but they are even stronger in the suburbs and rest of the state. Similarly airline passenger travel is effectively recovered in Eugene, Medford, and Redmond, while not so at PDX. As a result of fewer overall visits and trips into the City of Portland, leisure and hospitality employment remains depressed. In 2019 leisure and hospitality employment in Multnomah County accounted for 11% of all jobs, however today the industry accounts for nearly 45% of the employment shortfall relative to pre-pandemic peaks.
However, these general dynamics are not unique to Portland. Across the country, large urban areas with populations of at least one million residents are trailing their smaller urban and rural counterparts. In fact, economic data show that the Portland region is right in line with the experiences of these other big metros. As of October, employment in the Portland metro is down 4.2% from pre-pandemic levels, effectively identical to the 4.3% decline seen in the median large metro. Now, earlier in the pandemic, Portland did trail the typical large metro by a couple percentage points – likely impacted by the more stringent public health policies that helped slow the spread of the virus – but that gap closed in recent months.
While Portland overall is in the middle of the pack this can be thought of as both good and bad news. On the good news front two things stand out. First, despite the pessimistic narrative or portrayal of Portland – a place where protests turn violent, a place that has been burning for decades according to the former President of the United States, a place overrun with homelessness, and the like – economically the region is average. Societal ills are not to be ignored and do need to be addressed. For example, we know homelessness is primarily about the inability to afford housing, largely the result of not building enough housing in recent decades. However there is also a distinction between some of these societal challenges, public perception, and underlying economic performance. In terms of the economy, there is nothing fundamentally wrong with Portland.
Second, Oregon’s economy tends to be more volatile than the nation overall. We usually experience more severe recessions, and faster economic expansions. So far this cycle, Portland, and Oregon are experiencing an average-sized recession. The local economy is not starting from the bottom of the pack, like usual.
On the bad news front, while Portland may be pretty typical, the region does trail every one of its peer metro areas. As identified by the Portland Business Alliance, based on research from ECONorthwest, these peer metro areas are: Austin, Indianapolis, Nashville, Salt Lake and Seattle. Admittedly, these are very tough comparisons. Austin and Salt Lake are the two fastest growing large metros in the entire country. Portland is gaining noticeable ground on Indianapolis and a little on Nashville, making up some of the earlier differences. Portland and Seattle’s labor markets are moving in tandem, likely due to similar pandemic trajectories and health policies, but Seattle employment is running about one percentage point stronger. While these peers are among the fastest growing regions in the entire country, and make for challenging comparisons, Portland was certainly included in the same group last cycle.
While at the regional level, Portland is following trends seen throughout the country, what about the City of Portland and downtown in particular? Afterall, it is the urban core where the protests and violence occurred, where our unhoused neighbors are more visible, and where workers are making fewer commuting trips. The challenge here is data availability. A lot of economic data is published at the state, metro, and county level. In Oregon, counties work well for analysis but this is not the case everywhere. For example, the entire metros of both Phoenix and San Diego are contained within a single county. There is no ability to look at the city versus suburbs in the standard economic data. Thankfully 31 of the largest metros in the country have somewhat useful county level granularity. Even so, the best employment data at the county level lags considerably. Detailed county level data is only available through June 2021. Data through September 2021 will be released in February 2022.
Even so, as of June 2021, Multnomah County employment since the start of the pandemic does trail the median large urban county by 3 percentage points. At the metro level, Portland trailed the median by 1-2 percentage points back in June. This is one indication that the city versus suburbs divergence may be a bit more pronounced in Portland than in some other metro areas, but not necessarily entirely so. To the extent it is, it is more a matter of degree, not kind based on the imperfect data available. This is an important metric that our office will continue to monitor closely in the quarters ahead.
Employment is typically a good, real-time gauge of economic activity and growth. However, due to federal aid during the pandemic, this usual connection broke down. One of the explicit goals of federal policy was to ensure that Americans did not have to work during a pandemic just to put food on the able, if they did not want to. The goal was to slow the spread of the virus, with as few financial repercussions for businesses and households as possible. Between enhanced unemployment insurance benefits, recovery rebates, student loan deferrals, rent assistance, and the like, federal policy more than did its job.
In fact, as seen in the scatterplot below, overall income growth across metro areas last year was actually pretty consistent, regardless of local economic conditions. The blue dots are primarily in the +5-10% range for total income growth last year. However if one focuses just on the impact of job losses on wages and salaries, the relationship is quite clear. The gray dots show that larger job losses result in fewer wages earned. The difference between the gray and blue dots, again, is the substantial federal aid supporting household incomes everywhere, and more than enough to offset the variation in local job losses.
Specifically for Portland, the region lost 6.3 percent of its jobs on an annual average basis, which is noticeably larger than the median metro’s losses of 4.9 percent. Even so, Portland’s total income grew 7.0 percent last year despite the severe recession. Portland’s total income growth was just a hair stronger than the median gain of 6.9 percent across all metro areas.
A similar pattern is seen if we focus just on Multnomah County relative to both all counties in the U.S. and the other primary counties in large metro areas. Multnomah’s employment last year fell 7.6 percent which is noticeably larger than the typical U.S. county at 4.3 percent. However total incomes in Multnomah increased 7.9 percent which outpaced the typical U.S. county’s 7.6 percent gain. Specifically comparing Multnomah to the primary counties of the region’s peer metros, Multnomah’s income growth stands out last year. Income growth in Marion County, Indiana (Indianapolis MSA), Davidson County, Tennessee (Nashville MSA), and King County, Washington (Seattle MSA) were all slower than Multnomah. Reasonable county granularity is not available for either the Austin or Salt Lake MSAs.
While local economic conditions may have mattered less in the past year and a half than at any point in recent memory, the recovery is now at a crucial junction. The federal aid is gone. Local growth once again is in the driver’s seat.
Near-term growth will largely be about consumer spending on services picking up as we return more to our daily lives. Service industries are labor-intensive, which will drive strong near-term employment growth in the quarters ahead. A piece of that of will be white collar workers return to the office a bit more, going on more business trips and the like, which supports urban cores and jobs centers across the country.
Long-term economic growth is about the number of workers a regional economy has and how productive each worker is. Portland, and Oregon more broadly, have benefitted substantially in recent decades from an influx of young, skilled households moving here, and strong business investment. The question today, given the pessimism built into the conventional wisdom, is whether Portland’s longer-term growth prospects have been diminished. Is the region now a less desirable place to live, or run a business? Only time will tell. However, there are a few green shoots seen in the data.
First, Portland State University’s Population Research Center recently released the preliminary 2021 county and city population estimates for Oregon. Typically during recessions, population growth slows as job opportunities are fewer and harder to come by. Population growth slowed in 2020, due to the pandemic and recession, and these slow gains continued into 2021. Some of the underlying details are not yet available, neither are revisions to population estimates last decade following the delayed release of the 2020 Decennial Census data.
However it is important to keep in mind that population growth it is still positive. More people moved into Oregon, the Portland region, and Multnomah County specifically than moved out. Expectations are that this net in-migration will strengthen in the years ahead as it typically does, bringing with it an influx of mostly younger, mostly skilled workers. This boosts longer-term economic growth prospects overall as local firms can hire and expand at a faster rate due to the larger workforce.
Second, Portland’s reputation as a good place for business investment took a hit a year ago. For example, in last year’s Emerging Trends in Real Estate annual report from the Urban Land Institute, the Portland market dropped from its normally high-ranking spot to 66th best nationwide. In this year’s report, Portland rebounded to 49th best, which was the 10th largest increase in the rankings, but still lower than where the region ranked pre-pandemic. The biggest increases for Portland among the subcategories were in the local economy, and local public and private investments, while the region saw a relative decline in the investor demand subcategory.
While the ULI report is a survey based on market perceptions and investment opportunities, there is also a bright spot in the actual new construction permitting data. Initially, multifamily (apartment) permits dropped considerably at the beginning of the pandemic. Projects were put on hold, or worse, even canceled given the uncertain economic outlook and public health situation facing large cities nationwide. Encouragingly, permits for new apartment buildings in Multnomah County have been picking up throughout 2021. Today, the pace of new permits issued is nearly back to where it typically was pre-pandemic. It is not yet a full recovery, but at this point it looks to be more than just an encouraging trend.
The rebound in permitting activity, which will turn into economic activity and investment in the months ahead, is overall great news. One concern, however, is that the recent uptick may reflect delayed projects once again moving forward. While still good news, this could mean the permit activity overstates the actual increase in underlying demand and investment. Additionally indications are that Affordable projects are accounting for a larger share this year. On one hand this is great – more Affordable units! – but on the other it means private investment hasn’t rebounded as much as the chart alone suggests. Our office will continue to closely track new construction activity in the months ahead.
On the other hand, the need for more housing continues. Following a sizable building cycle in the urban core last decade, the apartment vacancy rate rose as more supply came on the market just as the pandemic hit. This was one reason why Portland’s investment opportunities and perception declined, because segments of the market were beginning to be overbuilt.
Now, today the vacancy rate is declining and rents are rising. There are legitimate underlying market fundamentals supporting more construction. This points toward an ongoing economic recovery and increase in investments. Given housing affordability is a key concern our office has in terms of the ability to attract and retain workers, the regional economy needs more new construction.
Bottom Line: Ultimately people vote with their feet and their wallet. Expectations are that Portland, and Oregon more broadly will remain an attractive place to live and work. Most households move for quality of life, job opportunities, and/or housing reasons. As such, the regional economy is likely to experience above-average growth in the years ahead. The outlook is bright. Already the region has caught up economically to other large metro areas despite local social challenges and public perception. However, the key question is whether or not Portland will reclaim its perch among the highest fliers around the country, which remains to be seen.
First, Kanhaiya Vaidya, the state demographer in our office, crunched some of the 2020 ACS microdata data for poverty rates by race and ethnicity. In a less diverse state we know the sample sizes can be small and the data noisy, even in years when Americans actually filled out the surveys. 2020 was not a good data collection year. With that caveat said, broadly speaking the data show that the racial poverty gap continued to narrow.
There were some noticeable increases seen in the data for Black, and American Indian and Alaska Native Oregonians. It can be hard to know today how much of the increases are real versus noise, but this is something our office keeps a close eye on every where when the data is released. Now, there were some larger decreases seen in the data for Asian and Pacific Islander Oregonians, and those identifying as two or more races. Additionally poverty declined noticeably for Hispanic or Latino Oregonians. Somewhat smaller declines were seen for White, non-Hispanic Oregonians. Overall, the racial poverty gap stood at 4.0 percentage points in 2020, the smallest on record. See our previous post for more on statewide income and poverty trends.
Second, we know there has been no pandemic-related migration boom in Oregon. However, our office’s forecast expects migration to pick up today and in the years ahead. One question we get is why do we think that will happen? One reason is we know historically migration has been pro-cyclical. The economy is now on the upswing, and job opportunities are plentiful. Young, working-age types are always the most likely to move and so expectations are some of them will move here, like they usually do.
Another reason we believe there will be an acceleration in migration is our best leading indicator has already turned up as well. The number of surrendered driver licenses are now essentially back to pre-pandemic trend overall, with migration from our neighboring states now above trend. Any weakness is coming from longer distance moves.
Now, due to the pandemic, and shutdowns, and appointment-only DMVs for a time the driver license data was not as informative as it usually is. There is a risk that continues to be the case, and we know some of the pick up in surrendered driver licenses is just catch up for those who moved during the pandemic and didn’t get an Oregon license in short order. But the broader trends certainly appear to be intact. Migration is picking up. This is a key driver for Oregon’s above-average economic growth over the full business cycle.
This morning the Census Bureau released “experimental” estimates for the 2020 American Community Survey. It’s a rather limited number of published tables available at the state level. It’s better than nothing, but this is what we get since all of us did such a terrible job filling out our surveys last year. The hope is the underlying microdata will allow our office to dig a bit deeper into the numbers which aren’t currently published, in particular this includes breakdowns by geography and race and ethnicity. All that said, let’s go over the headline numbers which are broadly in line with expectations and are continued good news.
It’s important to keep in mind what this data really shows versus how we have all felt during the past year and a half. The pandemic has been a personal, social, and health struggle to say the least. But it has not been a financial disaster, thanks to the federal aid which effectively more than offset the economic-related income losses.
Incomes for the typical household increased last year. Now, Oregon’s 1.3% increase was slower than the nation’s 2.5% gain. Even so, Oregon’s median household incomes are still 0.9% above the U.S. median, continuing the pattern seen in recent years. You have to go back to the 1960 Census to see a time, other than recent years, when Oregon’s median incomes were higher than the U.S. And of course given the size of the economic hole caused by the pandemic, incomes being up and not down is great news. Up is up.
While the typical income’s in Oregon grew a hair slower than the nation, Oregon’s poverty rate declined a hair more than the nation. Oregon’s poverty rate in 2020 stood at 10.95% which was a decline of 0.45 percentage points. This is the lowest poverty rate in Oregon since the 1970s. Nationally, poverty stood at 11.94%, a decline of 0.36 percentage points.
Given the available data we cannot easily update our office’s standard look at income trends across the distribution or poverty by race and ethnicity. We will work on those. However one item we can look at today is the issue of deep poverty. Deep poverty is typically defined as those with incomes less than half of the poverty threshold. We know the poverty threshold is an imperfect measure, so our friends, family, and neighbors in deep poverty really struggle.
What the latest data show is that not only did overall poverty decline last year, but we saw continued improvements among Oregonians in deep poverty as well. Both the total number of Oregonians in deep poverty, and measured as a share of the overall population fell. This matters economically and socially, but also in terms of demand for needs-based programs.
Bottom Line: The pandemic blew apart our world in terms of public health, social activities, consumer spending patterns, employment and the like. However, thanks to the federal aid last year, the direct financial losses were minimized. In fact, incomes grew and poverty declined. Federal fiscal policy more than accomplished its mission.
Now, one thing the pandemic did do was lay bare were some of the structural, or historical inequities in society. For example, the need for rental assistance is always there. Pre-pandemic renters in Oregon had a poverty rate greater than 20%, in the best economy we have experienced in decades. The issue was only about 1 in 4 households who qualified for rental assistance actually received help due to the chronic underfunding of federal programs. Funding for direct rental assistance increased considerably during the pandemic, helping to bring to light just how large the need truly is. The good news is twofold, first that the funding increased and more households can be helped. Second, that thanks to the overall general income situation, the need for such aid did not really increase during the pandemic, as confirmed by rental surveys throughout the pandemic, and by the poverty and deep poverty numbers released today.
Looking forward, income growth will be all about local economic conditions as the federal aid is gone. The good news is that labor income is booming, more than offsetting the fading federal aid. Now, it is possible income growth rates will be fairly moderate in 2021 and even 2022, just due to the math of the expiring federal funds weighing on the totals, but underlying income momentum today is very strong. This cycle is different.
Last week Portland State University’s Population Research Center released their initial estimates for 2021 population in Oregon. The release seems to have flown under the radar a bit, and it really shouldn’t. Our office tried to incorporate it the best we could in our forecast release, but with given the Tuesday data release and Wednesday forecast release, that proved challenging as well. We will continue to explore the numbers and their implications in the months ahead. Big picture, population growth is vital to Oregon’s faster economic growth as it helps provide the labor force needed for local businesses to hire and expand.
The upshot for the new release is there has been no pandemic-related migration boom in Oregon. That runs counter to the conventional wisdom, and certainly counter to many housing market discussions. This has been something Kanhaiya Vaidya, the state demographer in our office, has been on top of since the start of the pandemic. His population forecast called for slower population gains last year and this year, with migration rebounding in 2022 and beyond.
The primary reason for slower gains is that migration is pro-cyclical. As job opportunities dry up in recessions, migration slows and as jobs become more plentiful in expansion, migration accelerates. To the extent there as been any real pandemic-related migration, it has not been large enough to offset these traditional dynamics.
Now, PSU’s estimates are mid-year, or July 1st estimates. Given the economy and labor demand is booming today, expectations are migration is also picking up. This is confirmed by things like more surrendered driver licenses at the DMV in recent months.
The other contributing factor to slower population gains, as discussed before, is that deaths now outnumber births in Oregon for the first time. The state is fully reliant upon net migration for any population gains today, and our office expects this to continue every year into the future as well.
Two notes on pandemic-related migration. First, much of the discussion in the past year or so has been based on anecdotes, or online home search patterns and the like. We have lacked any hard data to really have a discussion. That has changed now.
Second, only 1 in 3 workers can theoretically work from home due to the nature of their jobs. That means 2 in 3 need to physically be somewhere to build homes, give care, cook meals, and so forth. Some basic math shows that it’s really only a small slice of the overall population we are talking about, and even smaller for purely remote work and not a hybrid model of a couple days at home and a couple in the office.
A very important technical note: Portland State released revised 2020 and preliminary 2021 estimates. The next step is to go back to revise the 2011-2019 estimates to make sure they align with the 2010 and 2020 decennial Census data. These so-called intercensal years (2011-19) have not yet been revised at the county level. That process takes time. Thankfully, Kanhaiya has done so for statewide figures, which can be found in our forecast tables. This matters for helping put the 2021 growth rates in perspective. At the local level we cannot really do this quite yet.
Even so, the estimates indicate that 30 out of Oregon’s 36 counties saw population growth in the past year. The fastest growing counties were Morrow (3.4%), Crook (2.5%), Gilliam (2.2%), and Deschutes (2.1%).
At the regional level every region in the state added residents, except the Gorge where slight estimated population declines in both Hood River and Wasco offset the gains elsewhere. Overall the Gorge is estimated to have lost 40 residents, which for all intents and purposes is a stable population, albeit one with a negative sign in front.
Due to the strong gains in Crook, Deschutes, and Jefferson (1.4%), the East Cascades region once again led overall population growth. Now, if there were any pandemic-related migration booms in the state, Central Oregon is the place the data indicate it did occur. Even so, growth rates do not look to have accelerated so much as did not slow down as much like elsewhere across the state. This should come into focus more clearly once the county intercensal estimates are available, so we can get a better handle on the the past handful of years overall.
All three counties in the North Coast Region – Clatsop, Lincoln, Tillamook – grew at above-average rates last year. Given the employment strength seen in both the Rogue and Willamette Valley regions of the state, the slower population gains are somewhat of a surprise. It is likely that lack of in-person schooling impacted Benton (Corvallis) and Lane (Eugene), as both counties saw small population losses. Much of rural eastern and southwestern regions of the state saw population gains that were slightly slower than the statewide average.
Finally, the Portland region grew slightly faster than the rest of the state. These gains were a bit stronger in Clackamas and Washington, while Multnomah’s growth was 0.003% slower than the statewide average. While more people moved into the state, region, and city than moved out, it is here, among the relative patterns that we can monitor any potential shifts in household preferences for urban vs suburban living moving forward.
Bottom Line: Total population is a driver for overall economic activity as more households create local demand for housing, food, entertainment, and the like. More households earn more money, boosting public sector tax collections alongside increasing local business revenue. Working-age population is the key for local economic growth as it provides the labor force from which local businesses can hire and expand. Population growth tends to be pro-cyclical. As we are now in an inflationary economic boom, expectations are migration flows will return in the years ahead.
Mark McMullen
Josh Lehner
Oregon Office of Economic Analysis 
